4 ms·
No cash is needed to sell the assets or LLC to the C Corp. Most likely, you would sell the assets of the LLC to the C Corp in exchange for some number of share
by uiri 10y ago
No cash is needed to sell the assets or LLC to the C Corp.
Most likely, you would sell the assets of the LLC to the C Corp in exchange for some number of shares (valued at the pre-money valuation of the company) and then issue additional shares equal to the VC money such that the total value of the new C Corp is the post-money valuation.
Afterwards, the founders can distribute the shares and wind up the LLC.
The alternative is for the founders to sell the LLC to the C Corp for shares and then the C Corp can wind up the LLC.
- nthj 10y agoI'm asking out of curiosity (e.g. I have no need to pay a lawyer or CPA to answer this): Would the founders have to potentially, or always, pay taxes on the conversion? Seems like the sale of the LLC or the assets could be recognizable gain.
- uiri 10y agoIt seems like it would qualify under the rules of an Other Nontaxable Exchange - Property Exchanged for Stock.[0] I think there are enough cases like this and the IRS rules are sufficiently clear that it will be possible to structure the VC investment in a way that eliminates any tax liability on the conversion. [0] https://www.irs.gov/publications/p544/ch01.html#en_US_2016_publink100072449 https://www.irs.gov/publications/p544/ch01.html#en_US_2016_p...